2013 October Capital Flows to Emerging Market Economies

October 07, 2013

Capital flows to emerging economies have seen a sharp retrenchment since mid-May 2013, prompted in part by a shift in market expectations towards an earlier normalization of U.S. monetary policy. In the immediate future, EM capital inflows look set for a rebound, in part because the Fed has delayed its tapering of asset purchases. We project that this recovery will be sustained through 2014, barring any major shift in market views about the course of Fed monetary tightening. Capital inflows are likely to be less buoyant than in recent years, however, as the fundamental underpinnings of EM growth have deteriorated.